Jan 25 (Reuters) - Iraqi Kurdistan-focused Genel Energy expects oil and gas production to fall for a third year in 2018, it said on Thursday, as it shifts its focus to two new gas fields.

The decline in production is due to a continuing slide in output from the Taq Taq field, once considered Genel’s flagship field, after the well hit water in 2016.

Genel’s operations in the northern Iraqi region were, however, largely unaffected following the Kurdistan Regional Government’s (KRG) independence referendum late last year that led to a military confrontation with Baghdad as well as sanctions from neighbouring countries, its Chief Financial Officer Esa Ikaheimonen told Reuters.

Although the unrest slowed Genel’s efforts to find a partner to develop the Miran and Bina Bawe gas fields, Genel is increasingly betting on their development after a recent survey showed a 40 percent increase in gas resources to 14.7 trillion cubic feet.

“Things are not on hold when it comes to Miran and Bina Bawe ... The referendum did not accelerate anything but it is not bad news for Genel,” Ikaheimonen said.

Field development plans, carried out by Baker Hughes , will be completed shortly and the company will carry out further test wells this year, it said.

Genel plans to spend between $25 and $40 million on the project in 2018 out of a total capital spending programme of $95 to $140 million.

The search for a partner for the fields is ongoing, Ikaheimonen added.

London-listed Genel said its 2018 production would fall 7 percent to 32,760 barrels of oil and gas equivalent per day (boed) after 2017 output declined by 34 percent.

At 0940 GMT, its shares were down 2.2 percent at 132 pence.

The company continued receiving regular payments from the KRG throughout 2017.

Genel’s cash proceeds, however, grew by around 30 percent in 2017 to $263 million due to higher oil prices.

Free cash flow totalled $140 million last year, while net debt dipped to $135 million following the refinancing of existing bonds in December. (Reporting by Arathy S Nair in Bengaluru; Editing by Bernard Orr and Mark Potter)